Are You About to Lose Your Savings in the Currency War?

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You may not have even noticed, but the first shots have already been fired in the next World War.

Only this time there are no tanks, fighter jets, nuclear subs, or missiles. And it's not the North against South, or even East against West.

It's war by other means and it pits fiat currency against fiat currency in a multi-trillion dollar knock-down drag out between the world's central bankers.

At stake is nothing less than the value of your life savings.

Its goal is to cheapen worldwide currencies-which could make every dollar you own worth even less.

Thanks to horrible fiscal mismanagement, virtually every nation in the world now wants its own currency to become cheaper against those of other nations.

Welcome to the currency wars.

Think of it as a race to the bottom. But where it stops nobody knows.

The Lies Behind the Currency War

James Rickards, senior managing director of Tangent Capital Partners, and author of Currency Wars: The Making of the Next Global Crisis, thinks this battle is about an effort to get economies going by importing inflation rather than attempting to boost exports.

But I believe it's about both reflating economies and stimulating exports. After all, national leaders are becoming increasingly desperate.

And though they'd like us to think otherwise, the currency war is here, and it's escalating.

In fact, G-7 finance ministers and central bank governors recently released a statement to try and downplay the intensifying currency war noting that, "…we will not target exchange rates."

Yet true-to-form, these high profile leaders are doing the exact opposite of what they're saying.

In the wake of the financial crisis, the world had seen unprecedented yet (until now) coordinated financial stimulus. But today central banks are so addicted to the temporary "fix" from printing money, they have little concern for its effects on other nations.

Now barely a day goes by without a currency war-related headline. In fact, here are two I came across last week: "Global Monetary System Headed for Collapse" and "The Fed's Global Unintended Consequence."

There are plenty of others and you can expect quite a few more as this situation continues its downward spiral.

Upping the Ante

Of course, the U.S. has been labeling China as a currency manipulator for several years now. They claim the Yuan is kept artificially low so that Chinese imports remain cheap.

Talk about the pot calling the kettle black…

Over the last four years, America doubled the entire debt accumulated since the nation's founding, going from $8 trillion to $16 trillion in the hole. What's more, The Federal Reserve's balance sheet recently set a notorious record, ringing in at over $3 trillion for the first time ever.

Then the Swiss, hurting from the effects of a strong Franc (CHF), decided that their currency was getting too strong and set a floor under it so the EUR/CHF rate couldn't drop below 1.20.

French President Hollande also recently told members of the European parliament that EU leaders "need to think about our currency, the euro. We must have an exchange rate policy otherwise it will have rates that do not reflect the strength of its economy."

But the most aggressive player in the currency war, at least so far, is Japan.

For a host of reasons, including zombie banks and horrible demographics, Japan's economy has stagnated and deflated for an entire generation. Its flagship Nikkei index peaked near 40,000 in 1989, yet today stands at 11,300.

With two straight quarters of contraction, Japan is "officially" back in recession.

In desperation, Japan is trying ever more Keynesian sleight of hand to reflate its economy. The new prime minister, Shinzo Abe, has promised aggressive unlimited stimulus and more money printing to try and jumpstart the economy.

But with an all-in real debt-to-GDP ratio close to 500%, Japan's probably the riskiest place to carry out such an experiment.

Already the Nikkei is up 30% over the past three months, and the Yen has given up almost 20% against the greenback since early October.

Just last week the U.S. undersecretary for international affairs, Lael Brainard, supported Japan's move. She said the G-7 normally prefer exchange rates set by the market, but sometimes "excess volatility or disorderly movements" means finance ministers have to step in and manipulate rates. So much for a free market, or even market-determined exchange rates, for that matter.

The risks are so high in Japan that this could realistically be where the first major currency crisis begins. Only this time, it could initiate the trend toward a total collapse of the world's fiat money system.

Not to be outdone, Venezuela, South America's largest oil producer, has just devalued its currency by 32%. That's the fifth straight time Venezuela has devalued in only nine years. It will help with the government's budget deficit, but it tramples the buying power of Venezuelans.

The country's annual inflation is already running at 22%, but this move threatens to make it even worse.

Many Latin American leaders are pros at this game. A little over a decade ago Argentina defaulted on its foreign bonds, thanks mainly to massive government overspending and corruption, which caused the public debt to mushroom. Making matters worse, Brazil devalued the real, hurting Argentine exports.

Is any of this starting to sound familiar?

I hope so, because not long ago Argentina banned estimates of true inflation by private economists from being made public.

Now, as the authoritarian regime grows ever more desperate, they've even resorted to fixing prices. On Feb.5th, major retailers agreed to freeze their prices until April 1st.

The Currency War Endgame

Unfortunately, I believe the U.S. is on the same path as pretty much the rest of the world. The end game is a race to the bottom because really, under a fiat money system, there's nowhere else to go.

This was recently confirmed by Kyle Bass, founder and principal of Hayman Capital Management, a Dallas hedge fund. Bass has profited handsomely from prescient calls on events from the subprime mortgage meltdown to Greek sovereign debt restructuring.

In a recent discussion with a senior Obama official, Bass disclosed that he asked how the U.S. would be able to grow exports if they don't allow nominal wage deflation. The official's answer: "We're just going to kill the dollar."

By now you're probably wondering how you can protect your net worth from all these central bank shenanigans. In my view, the answer is to own and accumulate gold.

Gold is the go-to safe haven as currencies are debased. If you don't believe me, just ask the Japanese, who now have to pay more than ever to buy an ounce of gold.

They've just seen the precious metal's price in Japanese Yen break out to a new all-time high.

So I suggest you ignore what central banks say, and instead do what they do: BUY GOLD.

China has been quietly accumulating gold since it last announced its reserves. Back in 2009 it reported a total of 1,054 tonnes. Thanks to massive and growing gold imports into Hong Kong and domestic gold production, it's likely that China's official stash is much higher today, likely approaching 4,000 tonnes, with some estimates considerably higher.

That would place them ahead of Germany, whose official holdings are at 3,396 tonnes. It's little wonder why Germany has decided to bring its gold home now.

According to figures from the World Gold Council, last year central banks accumulated more gold than at any time since 1964. That's almost 535 metric tons, with Russia, Brazil, and Iraq in the lead.

Despite this record central bank buying binge, gold still remains a dangerously small percentage of their total reserves.

It's clear that gold is regaining its rightful place as a cornerstone asset. As we continue down our current path, it's increasingly likely gold will once again assume its traditional role as true money.

The signs are there and growing louder by the day. The currency war is intensifying. I hope you'll heed its warning and buy yourself some gold.

But you should do it while your dollars still have some purchasing power.

>>Now read Is Japan About to Fire the First Shots in a 1930s-Style Currency War?

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About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

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  1. Martin | February 20, 2013

    Great article, thank you. While the situation for fiat currencies is close to chronically uncertain, people have been talking down the dollar for a few years now. But the dollar index has been rising since March 2008. And the price of gold (in dollars) has been falling since Septemer 2011. These trends could well continue, as they did back in 1929, when all asset prices fell vastly. History also relates that central banks are bad at timing their gold purchases – and sales. If they are buying keenly, then there is every chance that the gold price bubble is about to end. So, Caveat aurum emptor?

    • ispan | April 15, 2013

      In ~ 1997 … 1999 most of the central banks kept selling gold aggressively when it was near $300 / oz. So may be you are right that if they are buying now then price of gold will keep going down … But there is one difference now : hysterical money printing in key developed countries. That's one of the reasons why central banks keep buying gold. When they were selling in nineties the reason was elsewhere : the low and slowly falling price of gold itself, triggered panic that gold will soon be worth near nothing.

  2. H. Craig Bradley | February 20, 2013

    INFLATION OR DEFLATION FOR 2013-2018 ?

    Diverse assets in a global economy have proven to be highly correlated ( coefficient of .75) during serious market declines or especially bear markets ( decline of at least 20%). There is an ongoing debate between die hard goldbugs like Mr. Krauth apparently is based on previous articles he has authored, vs. and others Bob Prichter ( elliotwave.com) who maintain deflation is the dominant long term financial trend since the 2008 crisis.

    Bob maintains its the lack of new credit and especially, all the bad debt that has yet to be written-off or flushed-out of the global financial system ("extend and pretend"). Bob mentions in his book that in a deflationary environment, everything goes down. He further predicts the next 3-5 years will tell the story.

    Eventually, in the longer term ( 10 years), inflation is bound to be a growing (huge) problem, but not until all the existing bad debt is accounted for and we then start to get real economic growth instead of Federal Reserve Bank interventions sans actual economic growth. In the past few years, the velocity of money is way too low for inflation to really take off to double digits and beyond, no matter what various central bankers try to do ("reflate"). Bob maintains the bankers can not win the inflation-deflation tug of war. I tend to agree with him for now.

    • Doug | February 21, 2013

      Craig,
      Good stuff, and that's why we need to be diversified. I would note that velocity picks up quickly as confidence in a currency is lost. Here we have mention of QE stopping in the FOMC minutes and markets are reacting negatively. IMO, if the fed actually stopped QE, the stock, bond and housing markets would tank, banks would fail, unemployment would go way up, etc. That is why I think the fed and other CBs will be begged by their populations and institutions to print whatever is necessary to keep it from happening regardless of the inflationary consequences. Yes, price deflation could win out (along with bubble deflation) and that's why I have cash too, but I think inflation in commodities will come about and am diversifying to prepare for both scenarios.

  3. Lawrence Sima | February 20, 2013

    I KNOW!!! But I just don't know where to buy the gold or should it be physical gold or shares in Gold (like Sprott) or miners or should I buy silver since I have a very limited cash source ($1-3000) You are all incredible at Money Morning and I am as pleased a a kid on Christmas over your picks in the past but where can I turn to for SPECIFICS in gold purchase? Thanks and keep up the great work.
    Love Him!
    Lawrence

    • DD | February 20, 2013

      Lawrence Sima – They say buy physical PM's vs. paper PM's.

      More more info, you could contact:
      golddealer.com
      europacmetals.com
      kitco.com

    • Doug | February 21, 2013

      Lawrence,
      I can vouch for meritfinancial for gold. I have found them to have the lowest prices, though you do have to wait a few weeks. I have had no problems. Bulliondirect is also good, but I think are a little higher in price…

  4. Patrick A. Henry | February 20, 2013

    I understand why we should buy gold. I have just invested in some my self recently. But can someone explain to me why the price of gold has gone from $1686.00 on 2 Jan to todays price of $1562.00? If everyone is buying, who is selling more?

  5. Ayoola R Akanni | March 21, 2013

    I understand why we should buy gold. I have just invested in some my self recently. But can someone explain to me why the price of gold has gone from $1686.00 on 2 Jan to todays price of $1562.00? If everyone is buying, who is selling more?

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